FCA guidance on insurance customers in financial difficulty comes into force

The Financial Conduct Authority's guidance for insurers on customers in financial difficulty came into force on 31 July 2023, immediately after the commencement of the Consumer Duty Instrument 2022 (FCA 2022/31)¹. The instrument, cited as the Insurance: Conduct of Business Sourcebook (Customers in Financial Difficulty) Instrument 2023, inserts a new section, ICOBS 2.7, into the Insurance: Conduct of Business sourcebook¹. It was made by order of the FCA board on 29 June 2023¹.

The guidance sets out the FCA's view of the outcomes firms should aim to achieve and the actions they should take for customers experiencing financial difficulties¹. It complements Principle 12, which requires firms to act to deliver good outcomes for retail customers, and the obligations in PRIN 2A, the Consumer Duty, including rules on communication and on consumer support¹. The FCA states it is not a complete exposition of a firm's responsibilities to customers in financial difficulty, and does not alter or replace applicable rules, guidance or law, including those relating to credit agreements¹.

"The purpose of the guidance in this section is to give the FCA's view on the outcomes firms should aim to achieve and actions they should take to deliver good outcomes for customers experiencing financial difficulties."

FCA, Insurance: Conduct of Business Sourcebook (Customers in Financial Difficulty) Instrument 2023¹

Where a firm identifies a customer in financial difficulty, the guidance says it should provide support appropriate to that customer's needs and characteristics, to reduce the impact of the financial difficulty, enable the customer to maintain an appropriate level of insurance they can afford, and reduce as far as reasonably possible the risk of losing cover that is important to them¹. The firm should also ensure the customer has appropriate information about the options available, in good time and in an understandable format¹. The level of support reasonably expected varies with the firm's relationship with the customer, its role in the distribution chain, the customer's characteristics and the type of product¹.

The guidance lists circumstances in which firms may have reason to believe a customer is, or is likely to be, in financial difficulty, and options they should consider¹:

Circumstances indicating possible difficulty	Options firms should consider
Customer wants to reduce cover, whether paid in full or monthly	Whether other products provide appropriate cover at an affordable price, and revise existing cover accordingly
Customer asks about cover or premium payments in a way suggesting difficulty paying	Adjust cover for the changed financial circumstances, short term or longer term
Customer has missed payments, even without contacting the firm	Work with the customer to help them avoid cancelling important cover
Customer requests cancellation of cover that is important to them	Re-assess the customer's risk profile, which may have changed since purchase
	Consider whether requiring all contractual fees or charges is appropriate
	Consider referring the customer to another firm in the distribution chain better placed to help

A firm should not cancel a customer's policy solely because of missed payments without first considering options to support the customer¹. For shorter-term adjustments, firms should take reasonable steps to re-assess the customer's situation when that period ends¹. The guidance also says firms should take reasonable steps to make customers aware of the support available, including through prominent information in general communications and in communications about missed payments, and should make it easier for customers to make contact, including for those who need channels other than websites, webchats and email¹. Firms are reminded that the level of support needed by customers with characteristics of vulnerability may differ¹.

The guidance does not set expectations for the distribution of specialist risks contracts to commercial customers and other general insurance contracts to larger commercial customers, though firms distributing those contracts remain subject to FCA rules including the Principles². The FCA Handbook page for ICOBS 2.7 records the section as last updated on 26/06/2026, with individual provisions carrying different dates: ICOBS 2.7.1 and 2.7.4 are dated 31/07/2023, ICOBS 2.7.3 is dated 09/12/2025 and ICOBS 2.7.2 and 2.7.7 are dated 26/06/2026². The instrument itself gives the commencement date as 31 July 2023¹.

Why it matters for households

The guidance applies to insurers and intermediaries distributing general insurance to retail customers in the UK, from 31 July 2023¹. For households behind on premiums or considering cutting cover, it sets out what the FCA expects firms to do: identify customers who may be in difficulty, including from missed payments or requests to reduce or cancel cover, and consider options such as adjusting cover, re-assessing risk profiles that may have changed since the policy was bought, and whether to require payment of all contractual fees and charges¹. It states that a policy should not be cancelled solely over missed payments without options being considered first¹. Where cover is adjusted for a short period, firms should re-assess the customer's situation when that period ends¹. The guidance does not create new entitlements to a particular outcome, and the FCA says it does not replace existing rules or law, including on credit agreements¹. It does not cover specialist risks contracts distributed to commercial customers or other general insurance contracts to larger commercial customers².

What happens next

The instrument came into force on 31 July 2023¹. The FCA Handbook records later updates to individual provisions of ICOBS 2.7, dated 09/12/2025 and 26/06/2026². No further commencement dates are given in the instrument¹.

Sources2 cited